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7/23/15

Stocks To Consider For The Driverless Car Revolution

The driverless car revolution seems right around the corner. Audi has announced that its A8 limo will be able to drive itself in 2017. Ford (F) CEO Mark Fields predicts that fully autonomous cars will be available for purchase by 2020. Nissan has set the same target year for its autonomous vehicles. Elon Musk of Tesla (TSLA) expects driverless cars to be around by 2023. Jaguar and Land-Rover expect to market cars capable of fully autonomous driving by 2024. Daimler chairman Dieter Zetsche has suggested that by 2025 his company will produce cars that don't need a steering wheel.
But there are skeptics. Sheila Brennan at IDC does not think autonomous cars will be road ready until 2040. Director of Nvidia's automotive division Danny Shapiro has said
"it's still a ways away from full autonomy." Obstacles range from legal
conundrums about who will be to blame for accidents to practical
matters like completely mapping roadways and all of the important
objects on them and then maintaining those maps. This involves "some of the hardest problems in artificial intelligence and robotics."

Whether
the optimists or skeptics are correct, the race for fully autonomous
vehicles should be a boon for the Advanced Driver Assistance Systems
(ADAS) industry. ADAS includes the following:

Adaptive cruise control

Adaptive high beam and swiveling curve lights

Automatic emergency braking

Automatic parking

Blind spot monitor

Collision avoidance system

Driver drowsiness detection

Intersection assistance

Lane departure warning

Pedestrian protection system

Traffic sign recognition

The market for ADAS is set to grow from $11 billion in 2014 to over $200 billion by 2024.
If
you believe that the growth in the ADAS market and the emergence of
autonomous vehicles will translate into higher share prices for
participants, here are a number of companies that may be worthy of more
research.

Autoliv (ALV)
The
company manufactures automotive safety systems that include pedestrian
detecting cameras, night vision cameras for detecting obstacles in the
dark, and seat belts that restrain vehicle occupants before a collision
occurs. The company also makes forward and side looking radar. Its
customers include Mercedes, Acura, Cadillac, and Jeep. To better
position itself in the growing market, Autoliv is buying M/A-COM's (MTSI) ADAS unit.

Mobileye (MBLY)
The
Israeli firm dominates the camera based ADAS market. If you are looking
for a pure play, this is it. RBC Capital expects the company to
experience hyper growth through 2020. Note that it is likely to face
increasing competition in the future from new market entrants. On the
other hand, given the five to seven year lag time the company estimates a
competitor would need to enter the market, it would not be surprising
if a larger competitor would simply buy Mobileye.

STMicroelectronics (STM)
The chip maker supplies Mobileye with chips. Bloomberg expects chip sales for ADAS to grow an average of 13% per year through 2020.

Nvidia (NVDA)
The
company's chips already power car infotainment, navigation, and control
systems. Nvidia hopes its Tegra processors will help it move into the
ADAS market by consolidating several driver assistance processors into
one chip. For example, the Tegra K1 chip
can process data from cameras to detect objects and cars while
recognizing traffic signs and lane markings. It also processes rotating
Lidar senor data, which maps a car's surroundings. The chip operates at
under 100 watts, which Nvidia says will allow car manufacturers to
replace their heavier and much more energy intensive (two to five
kilowatts) computer systems. The company's chips power Audi's traffic
jam assist, which allows drivers to take their hands off the wheel and
feet off the pedals in stop and go traffic.

NXP Semiconductors (NXPI)
The company has partnered with Cisco (CSCO) to develop technology that allows cars to see around corners. NXP is also in the process of buying Freescale Semiconductor (FSL), which supplies parts for Caterpillar's (CAT)
self-driving dump trucks. In the future, Caterpillar's customers may
save tens of thousands in annual costs per vehicle by not having to
employ a driver. FSL also supplies parts for Hyundai's luxury brands. It
is estimated that revenues from optical sensors will grow sevenfold by 2020.

Nokia (NOK)
The
company's Here digital mapping service is a "proprietary collection of
hardware and software that is unmatched, even by Google (GOOG, GOOGL).
Plus, they have the most extensive patent portfolio covering collecting
and creating spatial content for current generation of maps and dynamic
data. Here also has the foundational patents covering usage of spatial
data for creating video games, movie content and the upcoming ADAS
vehicle applications," according to Kurt Uhlir. Audi, BMW, and Daimler have agreed in principle to buy Here for $2.7 billion.
If the deal goes through, the German automakers plan to invite other
car manufacturers to participate. In addition to Daimler, BMW, and
Audi's parent Volkswagen, the venture might involve Fiat Chrysler (FCAU), Renault (RNSDF), PSA Peugeot Citroen, Ford, Toyota (TM), and General Motors (GM).

Delphi Automotive (DLPH)
The
spinoff from General Motors is among the skeptics when it comes to
autonomous cars. Its CEO has recently said that driverless cars are
farther off than people realize. In the ADAS arena, the company focuses
on vehicle to vehicle communications.

Intel (INTC)
The
tech giant is trying to make inroads into the auto industry with
software and computers built on chips. The company says this approach
will cut time and costs for car manufacturers. While Intel boasts a
growing list of customers, which include BMW, Hyundai, and Infiniti
(Nissan's (NSANY) luxury brand), its automotive revenues are so far a smidgen compared to its overall sales.

Qualcomm (QCOM)
In
addition to supplying Google's autonomous cars with chips, the mobile
phone processor giant is entering the ADAS and autonomous vehicle space
with a focus on wireless communications between cars and the internet to
allow cars to see what is around them. For now Qualcomm's automotive
modems do not generate enough revenue to register in its earnings.
Nevertheless, the company estimates that by 2017 up to 60% of cars will
have cellular connections. A lot of the data needed to power ADAS will
come from the cloud. Qualcomm is a more general play on the growing
"internet of things." Note that because of activist investor pressure,
the company is expected to conduct a strategic review, which may result
in the breakup of the company. If that happens, one or more of the
spunoff businesses may be better positioned to capture ADAS market
growth.

American Tower (AMT) and Crown Castle International (CCI)
If
Qualcomm is correct that most of the data required for ADAS will be
stored in the cloud, then wireless infrastructure operators like
American Tower and Crown Castle stand to benefit. Vehicle to vehicle
communication will also use require cell towers.

Google (GOOG, GOOGL)
While
the company is a pioneer in the driverless car industry, it is unclear
how it will monetize its involvement. Will it sell its own brand of
cars? Will it license its Google Chauffeur software to car
manufacturers? According to Lux Research, the software market in
autonomous cars is expected to grow from $500 million in 2014 to $10 billion in 2020 and $25 billion in 2030. It sees Google and IBM as being positioned to take advantage of this opportunity. You can probably add Apple (AAPL) to the list.

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Disclaimer

The author assumes no responsibilities for actions taken by readers. The author does not provide investment advice, nor does he make any claims, promises, or guarantees that any suggestions, systems, methods, trading strategies, or any other information will result in a profit, loss, or any other desired result. All readers assume all risk, including but not limited to the risk of losses.